James Frayne: Creating a more contribution-based welfare system

James Frayne is Director of communications agency Public First and author of Meet the People, a guide to moving public opinion. The focus of this column is Theresa May’s conservatism for “ordinary working people”.

Issue

Creating a welfare system with popular public support through the introduction of a significant contributory element.

Background

The Conservatives have struggled to defeat weak Labour leaders because of their inability to lock down the country’s most important voting bloc: the C1/C2 group of voters that make up half the electorate in most of England’s marginals. Despite these voters slowly moving Tory since Labour lurched left post-Blair, the Party has overlooked them outside elections. These C1/C2 voters – the “just about managing” classes I covered in detail for Policy Exchange a year ago, and whose cause Theresa May has taken up – are attracted by two types of policies: those that appeal to their values of family and fairness; and those that make their lives easier. This reflects their material position: on average, they are “net zero” when it comes to interactions with the state, getting out what they put in. What they “get” comes in the form of services – schools, hospitals etc – not money (benefits). These voters are currently also net zero in terms of income and expenditure – they are not in debt but cannot save.

This explains why they care deeply about welfare. Hard-working and stretched, they think the system is unfair and that too many people get too much money, having paid too little in. They are largely right: we have evolved a welfare system where, broadly speaking, people get the same support regardless of how much they contribute. As the Tories look to build a mainstream majority, further welfare reform should be a major feature of this Parliament.

What next?

We need a proper contributory welfare system, but how should it be done? Regardless of logistical complexity, people need fair warning. This means a three step process. The first step is simple and can happen soon: now that we are about to leave the EU, we can make it clear that new arrivals will not have access to benefits until they have worked for, say, five years. It will not save vast amounts but it is a useful, principled first step.

As explained in a 2014 Policy Exchange paper, the next step would be the introduction of a new set of personal accounts – dubbed “MyFund” – which would see some of today’s NICs diverted into new individual funds that would then replace JSA . Clearly, people that could not work would be guaranteed an income they could live on along the same lines as now. But those that had contributed more would be able to draw down more funds than they currently can through JSA because their fund was greater – and to use their fund more flexibility. For example, people would also be able to draw down funds for things like re-training. Crucially, MyFund would belong to the individual. Any money not used over the course of a working life would be rolled into the individual’s pension.

The third step would be, as Policy Exchange’s document explains, an extension of the MyFund concept into other areas of welfare: for example, sickness benefits, social care and even mortgage payment support. The idea would be to ensure that the contributory principle was reflected throughout the welfare system.

Such a process would be logistically complex and politically controversial. But it would be the right policy for the country and, executed correctly, would be one that would appeal directly to those C1/C2 voters that ultimately decide who stays in Number Ten.